LivingSocial CEO Has Big Plans Now that Amazon Is in His Back Pocket

Groupon’s co-founder and CEO Andrew Mason has stolen the spotlight recently, by appearing on the “Today Show” and being interviewed on “Charlie Rose.”

But it’s hard not to make news when you turn down a $6 billion buyout offer from Google.

Meanwhile, Tim O’Shaughnessy, CEO and co-founder of LivingSocial.com, has remained relatively quiet. As the head of the second-largest company in the local, group-buying space, it wasn’t because he didn’t have anything to talk about.

Just about 24 hours before Groupon’s rejection leaked out, LivingSocial announced it had secured $175 million from Amazon, and $183 million in total new investments. In that same release, the Washington, D.C.-based company confirmed that it was booking revenues of more than $1 million a day on average and is projected to book well over $500 million in revenue in 2011.

To be sure, Groupon and LivingSocial are pulling away from the pack when it comes to defining the nascent daily-deals market. O’Shaughnessy, who claims that the two have 90 percent market share combined, said: “I think the idea conceptually that you can buy things online and go interact with merchants in offline is starting to take hold and be widespread. But it’s really been less than two years…It’s definitely the first couple of innings right now.”

Here’s our interview with O’Shaughnessy:

eMoney: Give me an update on where your business is today.

O’Shaughnessy: As of yesterday [Dec. 16], we were in 136 markets. We launched five new markets yesterday. We tend to do them in batches, and five or eight will go out at once. Overall, we’ve been averaging a market a day.

What about up-to-date figures on uniques?

We are at more than 10 million, or I think the last number we said publicly was 12 million. That’s primarily Canada and the U.S. that are signed up for the daily deal. We are in five countries today. [LivingSocial is in the U.S., Canada, the U.K., Ireland and Australia.]

What’s the competition like internationally?

Groupon has been acquisitive, and they’ve become established in lots of places. The U.S. is the most mature by a large margin, and there’s some countries with a few players that have established themselves, and finally, there’s some countries out there that’s a fairly green-field environment.

It’s fairly established that Groupon is No. 1, and LivingSocial is No. 2. But there’s a huge debate about who is No. 3?

There’s a pretty big gap. One of the things I’ve said is that it’s a pretty easy business to get into. All you have to do is know how to process a payment, and have a brother-in-law that has a restaurant that is willing to participate. But it’s a hard business to scale.

We have a competitive spreadsheet with 200 names on it, and if you do a couple of filters on how many deals someone has run, starting with 100, the vast majority drop off. And then if you up it to 500, you are up to the top two. It’s a pretty big drop-off.

Six months ago, we [Groupon and LivingSocial] collectively had 90 percent market share, and last month that was still true.

In that time, the market got bigger, and some others have grown for sure, but our market share has grown quite a bit. The signal-to-noise ratio is off, relative to who is doing what.

Is that what gives you confidence?

That’s one data point to look at, but what gives me confidence is what I see and I know we do every day. The degree of effort that goes into it and how many things can go wrong when you are managing merchant relationships, that’s what gives me the confidence.

What about the critics who say there’s no loyalty in this business–a consumer will always go with the provider who has the best deal for the business they want to visit.

There’s some loyalty that’s there, and I think people buy through us pretty regularly. They know that it’s going to be a merchant that’s vetted, and we work really hard at that. We are a good solid legit company that’s able to deliver. People place value on that. The brand matters, and enhancing user trust is an important thing.

What about the critics who say the margin will erode over time?

I think that the erosion of margins is just like any single other business if you stop innovating and do the same thing over and over. If we continue to innovate and provide additional value to merchants, the value per dollar increases. I don’t tend to be hugely concerned about the margin front.

The conduit has been 50 percent off a service, but there’s additional value we can provide to merchant communities and consumer communities. Overall, we aren’t not going to do the same thing over and over.

Can you give me an example?

We’ve started working with merchants in completely different ways, and sometimes we are going and operating events. We just did something called “tubbing and tasting,” where we worked with three merchants.

You could pick 10 to 12 Saturdays, and you’d meet in Midtown Manhattan, where a coach bus would take you to a snow hill, where you’d go snow tubbing. At the lodge, there was a bonfire and s’mores, and a beer tasting with a bunch of microbrews.

In that circumstance, we worked with three merchants–a coach company, a ski mountain and a brewery–in an entirely different way than how they associate with folks. I think it cost $60 and it sold out virtually every Saturday in January and February. I don’t see anyone else doing that, by finding unique hand-picked, curated ways to work with local businesses.

So, how will you be working with Amazon?

Right now, our first step is focusing on getting the relationship from a financial perspective locked down, and we’ll figure it out at a later point.

I assume the funding will go toward expansion?

We will be very aggressive on additional market launches as we build up our brand and user base. It’s very much a global game, and this is a global opportunity. We’ve gone from one country to five, and we’ll likely continue to expand globally.

A lot of this year was laying a foundation and the building blocks, and adding more value for the merchants, like LivingSocial Escapes. It’s on fire right now. It’s a weekend getaway, or a “staycation.” They are curated packages that are within a short driving distance from where you live. We also have LivingSocial Family Edition, which has things parents can do with their kids.

Your plans include tripling your employee count next year to 1,800 and more than doubling the number of cities you are in to 300?

We will continue to be pretty aggressive. Earlier this year, we were in six markets and we added 130 markets this year. We are a little more mature and one would hope that means we could move faster next year. We were around 30 employees, and over 600 now. It’s been a pretty crazy ramp-up.

The timing of your investment was so closely timed to Groupon-Google’s negotiations.

I’m a firm believer that we can’t control what other people do. Obviously, the deal we did with Amazon takes time to put together. We had decided awhile ago, if we want to become the biggest player in local commerce, we should be aligned with the biggest e-commerce company. That’s a lot of [what was] driving it. The timing was very coincidental.

So, no regrets?

No, not at all. We are thrilled and excited and expect to gain more market share over the coming year.


Latest Video

View all videos »

Search »

Nobody was excited about paying top dollar for a movie about WikiLeaks. A film about the origins of Pets.com would have done better.

— Gitesh Pandya of BoxOfficeGuru.com comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”